Commentary: The 401(k) millionaires' revolution is coming

Dr.Paul B. Farrell

LOS ANGELES (CBS.MW) -- Experts in the 401(k) management business tell me they see one of the next big financial revolutions occurring when employees band together and start suing their employers and 401(k) plan advisers for not providing more -- and better -- alternatives in their programs.

After all, when you leave a company you can roll over your 401(k) money into an IRA and have unlimited selections. But why do you have to leave a job to get more and better selection?

If I were arguing the case, I would argue on the issue of "discrimination" -- that someone who remains loyal to a company is being discriminated against in favor of those who leave for better jobs, or are fired for incompetence, or just get sick and tired of putting up with the company's nonsense.

Should you be leading the revolution in your company?Are you satisfied with your 401(k) plan?Rebel now. Demand more and better choices. After all, my friend, it's only your future and the future of your family!

Mad as hell and not going to take it

Consider this: The momentum driving the online investing revolution is accelerating. You've heard me predict many times that by 2010 all 70 million American investors -- that's right, 100 percent -- will be investing online.

Technology is making it possible for Main Street investors to collectively take charge of the financial world and make demands.

New signs of this massive power shift crop up every day: Wall Street giants like Merrill Lynch surrendering to online trading, expanded after-hours trading networks and a proliferation of fund supermarkets, to name a few.

And now we're getting another signal -- from the new 401(k) fund supermarkets -- that this revolution is progressing full steam ahead.

How to become a 401(k) millionaire

The single biggest complaint I hear from investors is that the selections are just too darn limited in their employer-sponsored 401(k) retirement programs. In the average plan, workers get a choice of a measly eight funds. That's absurd today, with a total of 10,000 funds out there. So if your goal is to become a 401(k) millionaire, many of you are running a handicap race. And it's time to protect your nest egg.

OK, so the problem evolved for three reasons: (1) Because most plans are marketed and administered by large banks and fund families controlling costs by managing liabilities with a limited menu. (2) Because employers and their outside plan providers fear the liability exposure from offering advice. (3) Because fund supermarkets are just now gaining acceptance as a way to buy mutual funds from more than one mutual fund family through a single source.Fortunately, these fund supermarkets are now marketing their 401(k) programs more aggressively to employers.

New 401(k) fund supermarkets

My interest in this new trend was triggered by an e-mail from a state government employee. The issue was a new program with too few choices.So I called Charles Schwab's staff for some information. And I got a remarkably simple answer: Schwab's OneSource and other existing funds supermarkets have been marketing themselves as 401(k) managers for a couple of years, and these programs are now beginning to catch on.

Yes, your employer-sponsored plan probably has an existing contract with an old-style, limited-menu plan. And it'll take time to upgrade these old fogies from their mom-and-pop limited menus to a broader supermarket selection, often with as many as 3,500 funds.But clearly this is the trend that will sweep the retirement-planning field in the next few years.

So if you want to get more familiar with this trend, here are a few choices among the enlightened no-load fund families that have also added fund supermarkets to their menus. They also allow the purchase of individual stocks and bonds.Call Charles Schwab, Fidelity, Scudder and T. Rowe Priceor Vanguard. Check their Web sites. Do some research. The 'best buys' from any source As I was thinking about this issue, I happened to be reviewing the latest No-Load Fund Investor, the Sheldon Jacob newsletter that USA Today has called "the best single resource for the average fund investor," justifiably. The newsletter has a great monthly feature that, by itself, pays for the subscription.

In the back of each issue, there are six sets of model portfolios using funds from Vanguard, T. Rowe Price, Fidelity and Schwab's no-transaction-fee network, with best-buy fund selections for each portfolio. Each set also offers three portfolios based on asset allocations: Wealth Builder, Pre-Retirement and Retirement, with the last set, the Master Portfolios, including "best buys from any source."

That phrase really caught my eye, as these "best buys from any source" included the following eighteen well-recognizable winners. So I asked myself, why is it that all investors can't have 401(k) plans that -- like IRAs -- allow them to select the "best buys from any source"?

Fortunately, the newer 401(k) supermarket programs do offer investors much broader selections.And, to protect themselves, they also require the employees to make specific declarations assuming responsibility for managing their own 401(k) portfolio -- self-direction, they call it. And it'll cost a few extra bucks each month.But that's a low price to pay for your freedom, if you're serious about taking charge of your financial future.

Legal twist: too few funds, not too many

This opens a whole new battlefield within the broader context of today's online investing revolution.And if there's one major problem area that employees are rebelling against, it is the little conspiracies between employers and plan providers that offer old-fashioned limited menus of a only 10 or fewer funds -- especially when there's a whole universe of 10,000 funds out there to pick from today, many of them much better than the selections offered in their current plans.

It doesn't make sense, and it's high time employees start demanding change.

Here's what the lawyer side of me can see happening soon: Up to now, liability exposure has been one of the excuses employers used in limiting employees' choices.Guess what? That fear is about to do a big flip-flop. In the future, employers and plan providers had better worry about being sued for having too few choices rather than exposing their employees to too many!

Get aggressive, demand more choices

I get a lot of e-mails about 401(k) and other retirement programs.And what I find is that employees are too timid.They constantly run up against company officials who give them gobbledygook about why they can't have more funds to pick from. So many of them just give up.

Stop doing this to yourself.Demand more choices. The fact is that your employers now have many more options that can expand your selections considerably.Just remember: This new freedom-of-choice option will be common in the workplace in the next few years.And here's the key to accelerating the trend: you!

If you don't like the narrowly limited choices in your 401(k) plan, get into action now.Take the time to band together with your co-workers and demand to be heard by your employer.Do some research.Call all the fund supermarkets.Call your state government overseers.

Ask the tough questions.And don't take no for an answer. You don't have to.Make your voice heard, because you and your employer now have real options that give you much broader choices -- through fund supermarkets and their self-directed plans.

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